How to Trade Ciena After Fiscal Q3 Earnings Beat
Ciena is a US optical networking systems company; it builds fibre-optic systems and software that carry data across networks and between data centres.
Last week, the company reported results for its fiscal third quarter, beating expectations on the top and bottom lines and raising its full-year revenue guidance. However, despite the strong quarter, shares slumped more than 10% on the day of the announcement. Keep reading to find out more and learn what analysts are predicting for the stock.
The information in this article is provided for educational purposes only and does not constitute financial advice. Consult a financial advisor before making investment decisions.
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Ciena Fiscal Q3 Performance Summary
Key Takeaways:
- Revenue jumped 37% to $1.67 billion, up from $1.22 billion a year before.
- Optical Networking revenue climbed 46% to $1.19 billion, accounting for 71% of total revenue.
- Revenue from cloud provider customers soared 82% and now accounts for 53% of Ciena’s total revenue.
- Two cloud providers accounted for 41.7% of total revenue between them.
- Adjusted earnings per share soared 215% to $2.11, compared to $0.67 in the prior year.
- On a GAAP basis, EPS rose to $1.83, up from $0.35 in the same quarter last year.
- Adjusted gross margin climbed 450 basis points to 46.4%, whilst adjusted operating margin more than doubled to 22.5%.
- In the earnings call, management said that Ciena’s order backlog had grown to $8.5 billion, and that it is expected to exceed $10 billion by the end of the fiscal year.
- Ciena raised its full fiscal year revenue guidance and provided an early view for fiscal year 2027, guiding for:
- Full fiscal year 2026 revenue of $6.42 billion, plus or minus $50 million. At the midpoint, this would represent year on year growth of 35%.
- Fourth quarter revenue of $1.75 billion, plus or minus $50 million, with an adjusted operating margin of 20.0%, plus or minus 50 basis points.
- Fiscal 2027 revenue growth of at least 30%, with adjusted operating margin in the range of 25% to 27%.
Ciena 12-Month Analyst Stock Price Forecast
According to 14 Wall Street analysts, polled by TipRanks, offering a 12-month stock price forecast for Ciena over the past 3 months:
- Buy Ratings: 10
- Hold Ratings: 4
- Sell Ratings: 0
- Average Price Target: $518.86
- High Price Target: $658.00
- Low Price Target: $375.00
Trading Strategy Example: Ciena
The following trading examples are for educational purposes only and do not constitute investment advice. Investors should conduct independent research before making trading decisions. An example trading idea for Ciena could be as follows:
Despite Ciena’s fiscal Q3 earnings comfortably beating expectations, the stock sold off following the announcement, dropping more than 10%. The explanation for this may lie in its fiscal Q4 guidance.
Although Ciena raised its full year revenue expectations, it expects margins to tighten in the fourth quarter, with the company guiding for adjusted gross margin of 45.0% (plus or minus 50 bps) and adjusted operating margin of 20.0% (plus or minus 50bps). Even at the top end of the range, both figures are lower than the 46.4% and 22.5% respectively recorded in fiscal Q3.
A 10% sell-off may seem like an overreaction to slightly compressed margins, however, it should be looked at in the context of Ciena’s valuation. Prior to the earnings print, Ciena had been trading at almost 120 times trailing earnings; in other words, it was priced for perfection, and the prospect of decreasing margins may mean slower growth ahead.
Following the results, Ciena now trades at around 70 times trailing earnings. Whilst this is considerably lower, it’s still high compared to the wider market. Any further sign of slowing growth could weigh on sentiment and have an outsized impact on share price.
Investors should also consider how concentrated Ciena’s sales have become, with two customers accounting for more than 40% of revenue in Q3. Slowing demand or any other issue from one of these two customers could be enough to seriously disrupt Ciena’s growth story.
How to Buy Ciena Stock in 4 Steps
- Open an account with Admirals and complete the onboarding process to access the dashboard.
- Click on Trade or Invest on one of your live or demo accounts to open the Admirals Platform.
- Search for your stock in the search window at the top.
- Input your entry, stop-loss and take profit levels in the trading ticket.
Do You See the Ciena Stock Price Moving Differently?
If you believe there is a higher chance that the share price of Ciena will move lower, then you can also trade short using CFDs (Contracts for Difference). However, these have higher associated risks and are not suitable for all investors. Learn more about CFDs in this How to Trade CFDs article.
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals investment firms operating under the Admirals trademark (hereinafter “Admirals”) Before making any investment decisions please pay close attention to the following:
